U.S. merchant fleet sails toward oblivion

Waiting: The USNS Seay is one of eight cargo ships of the reserve sealift fleet that are tied up in Baltimore. The fleet consists of nearly 100 vessels.

Waiting: The USNS Seay is one of eight cargo ships of the reserve sealift fleet that are tied up in Baltimore. The fleet consists of nearly 100 vessels. (Sun photo by Doug Kapustin)

Robert LittleSun Staff

Last of two parts

The LNG Aquarius was built in the United States because it is one of the most technically sophisticated cargo ships afloat. And American shipyards are the best in the world.

The 936-foot tanker was registered, or "flagged," in the United States because it hauls liquefied natural gas chilled to 260 degrees below zero and requires meticulous care. And American sailors are the best-trained in the world.

But the LNG Aquarius doesn't fly the American flag anymore, and its crew of American mariners is gone.

Because American cargo ships are also the most expensive in the world.

Like thousands of vessels before it, the LNG Aquarius fled the U.S. merchant marine in favor of a fleet with fewer regulations and lower costs. It replaced its crew with foreign sailors, casting the Americans off into new careers, early retirement or unemployment.

The exodus of ships has decimated the U.S. merchant marine, once the world's dominant fleet of cargo vessels. Now the decline is threatening national security, not because of the withering fleet of ships but because of the dwindling number of sailors employed by it.

The pool of qualified American merchant seamen has been so ravaged by cheaper international competition that the nation lacks the manpower to operate the Pentagon's cargo fleet in wartime. Waging even a modest conflict no larger than the Persian Gulf war of 1991 is beyond the fleet's means.

Ship owners say the federal government is largely to blame. For decades, Congress has slashed or eliminated the industry's subsidies and protections while imposing the costliest regulations, taxes and safety standards in the world.

Unofficial 're-flagging' ban

Only now, with military readiness in peril, has the U.S. Maritime Administration turned its focus toward preserving the merchant marine's labor pool by quietly imposing an unofficial ban on the "re-flagging" of vessels to hire foreign crews.

But the fleet continues to decline, with many ships choosing the scrap yard as an acceptable alternative to the high costs of flying the American flag.

"It's tragic, really, that it's gotten to this point," said John A. Gaughan, a former head of the Maritime Administration, which regulates merchant shipping in the United States. "I think if you took all of us who have been maritime administrators and lined us up, and if we were honest, we would all have to say that we failed."

The United States' commercial fleet was the largest in the world in 1950, with 3,492 ships. Today, the trade lanes are ruled by countries such as Panama, Liberia, Malta and Cyprus. The United States, with 220 vessels in active trade, doesn't rank among the top dozen maritime powers.

Money is to blame. Virtually every cost associated with operating a ship - except fuel - is more expensive when that ship is part of the U.S. merchant marine.

The payroll costs more. Taxes are higher. Insurance is more expensive. Ships must be built to the Coast Guard's exacting standards. Repairs must be made in expensive American shipyards.

An American cargo ship costs as much as $4 million more to operate for a year than an identical ship flying a foreign flag, expenses that few ship owners are willing to pay.

'It just gets worse'

"You start off with an income tax that puts a company 35 percent behind the curve," said Joseph J. Cox, president of the Chamber of Shipping of America, a group of American ship operators. "Who's going to get in? No one. And it just gets worse from there."

Owners of ships registered in the United States often take extraordinary measures to reduce the costs that the flag demands.

Lykes Lines once stripped the engines out of two ships, plugged up the propeller shafts and towed the vessels with tugs, ruining two perfectly good ships but reducing their required crew from 33 to nine.

American Heavy Lift Shipping chopped four 1950s-vintage tankers in half and welded on new 510-foot bodies, an unfathomable expense anywhere else in the world but one-quarter the price of building new ships in an American shipyard.

Matson Navigation signed a contract this spring to repair five ships in Shanghai, China, even though it will be fined 36 percent of its costs as a penalty for using a foreign shipyard. "It's still considerably cheaper," said Matson spokesman Jeff Hull.

The few ships still in the U.S.-flag fleet remain mostly so that they can haul products reserved for American ships by law, such as Alaskan oil, government grain, military cargo and domestic shipments to Hawaii and Puerto Rico.

For most others, the U.S. flag is not worth the costs, so they do what the LNG Aquarius did - they leave the fleet.

A change of flags

While the LNG Aquarius was at anchor last year in the United Arab Emirates port of Fujairah, its nation of registry was changed to the Republic of the Marshall Islands. The American flag came down, the new flag went up, and a crew of Croatians and Filipinos replaced the 27 Americans.

The ship is still sailing today, with annual expenses reduced by about $3 million.

"We couldn't keep operating with those expenses. No one could," said Sidney G. Vass, president of BGT Ltd., which charters the LNG Aquarius. "Americans are just too expensive."

The largest expense onboard an American ship is the crew. Any vessel flagged in the United States must employ Americans, who demand American wages. An able seaman on a U.S.-flagged vessel typically makes at least $40,000 a year, and officers can make $120,000 or more. A sailor from the Philippines can make as little as $435 a month.

Mariners in the U.S. merchant marine make no apology for being more expensive than their Third World counterparts. American mariners are generally regarded as the best-trained sailors in the world and their wages are no better than those of other skilled workers in the United States.

"It can be a comfortable living, no doubt about it," said Charlie Snyder, chief engineer on the LNG Aquarius before it was re-flagged. "But I've always felt you had to pay us about 50 percent more to get us to go to sea.

'Not an easy life'

"Do you know how many games I've missed? How many of my daughters' dance recitals? Imagine being with your 4-month-old daughter, walking out the door and not coming back until she was 8 months old. It's not an easy life."

The federal government doesn't allow ships to hire foreign sailors, because American sailors are the U.S. merchant marine's most important commodity.

The Pentagon needs 3,594 of them to operate its fleet of cargo ships in wartime, and it can't cannibalize the merchant fleet to get them. The nation needs enough sailors to operate the military and commercial fleets simultaneously.

So the federal government requires its cargo ships to hire Americans, then tries to compensate the ships' owners for the added cost.

The government pays out $100 million in ship subsidies every year and underwrites more than $1 billion in loans. It spends half a billion dollars a year on the added cost of shipping its cargo on American vessels and employs an entire government agency to preserve the U.S. merchant marine.

But American ships are still the most expensive in the world. And despite its efforts, the government is still mostly to blame.

Salaries aren't the only thing driving up the cost of an American ship. A host of other expenses contribute to the fleet's inability to compete in the international market, all of them required by the federal government.

Bigger crews required

American ships must hire more crew members than foreign ships, often 23 or more, compared with as few as 11 on other vessels.

They must make repairs in the United States or pay a penalty. Even repairs made at sea by the crew result in a penalty if foreign equipment is used.

Any ship that carries goods from one American port to another must be flagged in the United States and built in the United States under the Jones Act of 1920. The requirement is designed to preserve American shipyards, which are also considered vital to national defense. But American shipyards might charge $150 million or more for a standard cargo ship, compared with $70 million or less for a similar ship built in a foreign yard.

American ships pay the same taxes any other business does, while most of their competitors pay nothing. They are required to comply with safety regulations that far exceed international standards.

American ships also cost more to insure, partly because they cost more to replace but also because American sailors file more injury claims than any others.

Back injuries in particular "appear to be endemic amongst U.S. seamen," says a report from the U.K. Protection & Indemnity Club, the world's largest marine insurer. "It seems possible that these figures say as much about the U.S. legal system as they do about the U.S. backbone."

Even ship owners willing to pay American salaries say they were forced from the fleet because of all the other expenses that the U.S. flag requires.

"Foreign crews eat less, they travel economy class, they seem to use less [provisions], there's less overtime, no workers complaints," said Vass, who re-flagged the LNG Aquarius. "I can't think of anything that didn't cost more. Like the beef. They would only eat prime American beef - not choice, like your wife feeds you, but prime, U.S. beef. We had to fly it out to Japan.

"I'm not saying the Americans aren't good. They are. But the foreign crew doesn't mind eating Australian beef."

The U.S. Maritime Administration had the power to stop the LNG Aquarius from leaving the fleet. It can refuse requests to re-flag if the ship's departure would be harmful to the nation.

But for years the administration granted vessels' re-flagging requests routinely, saying it was powerless to stop them because the Pentagon didn't need the ships.

Only now, after allowing more than 1,600 vessels to leave the fleet in the past quarter of a century, has the Maritime Administration decided to stop re-flaggings, because the Pentagon needs the sailors.

In an unprecedented move, the Maritime Administration granted the LNG Aquarius' request to re-flag only when its owners pledged to employ Americans on six other vessels they wanted to re-flag.

"Absent applicant's proposal to retain U.S. seafarers, it is hard to perceive of a sound basis for approval in view of the adverse impact on the commercial and militarily useful U.S.-flag fleet that a lack of trained mariners would cause," Clyde J. Hart, then maritime administrator, wrote in the order allowing the ships to re-flag.

In a later interview, Hart said the agency would deny all new re-flagging requests that could lead to a decline in the seafaring labor pool. Hart was appointed by President Bill Clinton. The Bush administration has not named a replacement.

"Any re-flagging request, at least now, will require a look into the manning issue," he said. "At this point, every job counts - even a hundred or so. These days a hundred people is enough to crew five ships. And we need every ship."

The Maritime Administration's mission is to "promote the development and maintenance of an adequate, well-balanced U.S. merchant marine." Its latest report calls the U.S.-flag cargo fleet "large" and "diverse" and says it consists of 29,446 vessels.

Report called misleading

But according to Gaughan, the former Maritime Administrator, the report is misleading.

Only 610 of those vessels have engines. And discounting ships owned by the government, chartered to the military, laid up in mothballs, working on the Great Lakes or too small to be considered oceangoing, the active deep-sea fleet consists of about 220 ships.

"That report seems to be a conscious decision on the part of [the U.S. Maritime Administration] to mask the size of the fleet and hide the fact that it's gotten so small," said Gaughan.

And the fleet continues to shrink.

Sabine Transportation scrapped the tanker Sea Princess earlier this year because it couldn't use a foreign shipyard to convert it into a bulk carrier.

Sargent Marine plans to lay up the Asphalt Commander this year and re-flag or scrap it because labor shortages, high repair costs and government-imposed trade restrictions make it unprofitable flying the U.S. flag.

An additional 40 ships could flee by 2006 because of a law passed after the Exxon Valdez oil spill in 1989 that requires tankers to have double-layered hulls. A large double-hulled ship costs more than $200 million to build in an American shipyard - three times the price in South Korea - and only one new ship is being built for every three that leave the fleet.

'Not encouraged'

"Shipping companies who own and operate these vessels base their replacement decisions largely on whether they believe that new or converted vessels are worth the investment," said a report last year from the U.S. General Accounting Office. "And most companies apparently are not encouraged."

Two were re-flagged when the government cut shipments to Central America, two were sold and re-flagged when their government charters expired, and three were sold after a trade dispute between the United States and Brazil dried up the company's profits.

All seven of the vessels are still sailing, four of them under foreign flags and three chartered by the U.S. Navy. None was commercially profitable for Crowley under the American flag.

"This is a company that wants to fly the U.S. flag - they held on to the flag a lot longer than most," said Mike Roberts, a former Crowley vice president and now its director of government relations. "But they couldn't do it any more. It just wasn't profitable."

Few Americans might notice the merchant marine's demise - unless war breaks out. The shelves in American stores are stocked by a continuous stream of goods, less than 3 percent of which ever see the inside of a U.S.-flagged ship.

But businesses that rely on the U.S.-flagged fleet notice.

Midwestern farmers say they could sell 20 percent more grain through the government's international assistance programs if the United States didn't have to spend an extra $400 million every year paying to ship its products on American vessels.

Airborne cattle

Hawaiian cattle ranchers have found it cheaper and more efficient to ship their livestock on airplanes than on U.S.-flagged ships.

They can't use cattle ships because all cattle ships are foreign. And shipping cattle in "cowtainers" stowed next to the pineapples, coffee and other exports on a U.S.-flagged ship is expensive, slow and insufficient to handle the volume the ranchers need.

So some Hawaiian cattle fly - in 747s, herded into livestock containers, 30 cents a pound.

"Can you believe that? Cattle on an airplane," said Corky Bryan, vice president of Parker Ranch, Hawaii's largest cattle ranch. "It's nuts."

It's the law. Shipping companies have complained for decades that federal regulations were driving their costs to unthinkable levels and decimating the U.S. merchant marine as a result. The presidents of two large U.S. carriers warned Congress in 1992 that the fleet was "in a state of orderly liquidation."

But in the past half century, little has changed.

Cuts in subsidies

The most sweeping change in federal maritime policy in the past decade was made in 1995, when the government reduced vessel operating subsidies by about half.

Before that, a 1986 law eliminated tax breaks for foreign-flagged vessels owned by American companies.

Proposals to allow foreign-built ships in domestic trade are rejected in Washington every year - by the same Congress that eliminated federal subsidies for construction of American-built ships.

The Bush administration proposes eliminating loan guarantees for vessel construction. It also wants to transfer much of the Maritime Administration's responsibility to the Department of Defense.

"If you look back through history, you'll see that the industry was never really taken seriously. The only time people cared about the merchant marine was when there was a war on," Andrew Gibson said in an interview before his death July 8. Gibson was maritime administrator under President Richard M. Nixon and was co-author of a recent book on U.S. maritime policy.

"You eventually become convinced," he said, "that this country really doesn't want a viable merchant marine, at least not in international trade. It's the only conclusion you can reach."